February 27, 2017

Sheng Siong Group (SSG SP) SELL Share Price SGD 0.96 Look elsewhere for cheaper 12m Price Target SGD 0.85 (-11%) growth plays Previous Price Target SGD 0.88

Maintain SELL; cut TP a further 3% to SGD0.85 Company Description Mass-market operator. Third largest in Maintain SELL post-FY16 results. We find it hard to justify 23x P/E for by market share. single digit growth, and growth will keep slowing amidst greater traction by online grocers. In our view, ’s operating model is also unsustainable as it depends too much on margin improvement to drive ROE, while asset-use efficiency has deteriorated. With margins close to Statistics peaking and store expansion challenges, growth will remain slow unless 52w high/low (SGD) 1.10/0.84 it is willing to gear up to acquire growth either locally or overseas. But 3m avg turnover (USDm) 2.0 that will certainly change its risk profile. We lower FY17-FY18 EPS Free float (%) 34.9 estimates 3-4% and our DCF-TP 3% to SGD0.85 (WACC 7.1%, LTG 1%). Issued shares (m) 1,504 Market capitalisation SGD1.4B

ConsumerStaples 4Q/FY16 in line, but uninspiring USD1.0B NP growth over the last five quarters has slowed from >20% YoY a year ago to single digit growth by 3Q16 and just 5.7% in 4Q16. Same store Major shareholders: Sheng Siong Holdings Pte Ltd. 29.9% sales growth (SSSG) ended the year on a weak note. 4Q16 SSSG was flat LIM HOCK ENG 11.3% at +0.2% YoY, mirroring the full year’s 0.2%. Bright spots were a resilient LIM HOCK CHEE 11.3% gross margin and new store sales growth of 8% YoY in 4Q16, above 3Q16’s Price Performance 5% as Yishun Junction 9 opened. 1.15 270 The going to get tougher… 1.10 250 First, supermarket growth is expected to slow sharply. Euromonitor has 1.05 230

Singapore flagged a sharp slowdown in supermarket revenue CAGR to just 1.6% in 1.00 210 2016-2021 from 4.5% in 2011-2016, as online grocery retailing gains 0.95 190 traction. Watch out for the potential entries of Amazon and Tesco. Even 0.90 170 management agreed that the online shopping model is better than brick 0.85 150 & mortar. Second, competition for new store locations is getting stiffer, 0.80 130 with even convenience stores potentially entering the fray. 0.75 110 0.70 90 …but can the tough get going? Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Sheng Siong Group - (LHS, SGD) We think it will be difficult. An ROE decomposition shows that Sheng Sheng Siong Group / Straits Times Index - (RHS, %) Siong’s growth so far has been achieved on large margin improvement, -1M -3M -12M which is nearing the limit and we expect further margin uplift to slow. Absolute (%) 3 (5) 10 Asset-use efficiency has suffered since 2014 since it started buying assets, and now even new store sales growth could be affected by Relative to index (%) 0 (13) (8) increasing site competition. Finally, the last ROE lever, financial Source: FactSet leverage, could be used to acquire growth but that could mean raising the risk profile beyond what investors would be willing to accept.

FYE Dec (SGD m) FY15A FY16A FY17E FY18E FY19E Companies mentioned in this report Revenue 764 797 812 856 883 Tesco (TSCO LN) - NR EBITDA 80 91 91 96 102 Core net profit 57 63 63 66 69 Amazon (AMZN US) - NR Core EPS (cts) 3.8 4.2 4.2 4.4 4.6 Dairy Farm (DFI SP) - NR Core EPS growth (%) 19.3 10.4 1.1 4.9 3.3 Net DPS (cts) 3.5 3.8 3.8 4.0 4.1 NTUC - private company Core P/E (x) 25.3 22.9 22.7 21.6 20.9 7-Eleven - private company P/BV (x) 5.9 5.7 5.6 5.4 5.3 U Stars Supermarket - private company Net dividend yield (%) 3.7 3.9 4.0 4.2 4.3 ROAE (%) 23.6 25.3 24.9 25.4 25.5 Yes Supermarket - private company ROAA (%) 15.9 16.6 16.4 17.0 16.9 Angmo Supermarket - private company

EV/EBITDA (x) 14.2 15.0 15.2 14.3 13.3 Source: Maybank Kim Eng Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Consensus net profit - - 68 72 na MKE vs. Consensus (%) - - (6.6) (7.3) na

Gregory Yap [email protected] (65) 6231 5848

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH (PTE) LTD Co. Reg No: 198700034E MICA (P) : 099/03/2012 SEE PAGE 15 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Sheng Siong Group

1. 4Q/FY16 results review

Uninspiring end to FY16 for SSSG FY16 net profit of SGD62.7m (+10% YoY) was within our expectation, but still uninspiring. Same store sales growth (SSSG) ended the year on a weak note. 4Q16 SSSG was flat at +0.2% YoY, mirroring the full year’s 0.2%. Net profit growth over the last five quarters has slowed drastically from >20% YoY a year ago to single digit growth by 3Q16 and just 5.7% in 4Q16.

Figure 1: Net profit growth has slowed sharply in the past 5 Figure 2: SSSG is near zero; moderated by strong new store quarters sales growth

35.0% 20.0% 31.5% New store sales rose 8% in 4Q16, faster than 3Q16 because of the opening of Yishun Junction 9 in Sep 30.0% 26.5% 15.0% 2016 23.9% 25.0% 21.9% 20.8% 10.0% 19.3% 18.7% 20.0% 16.7% 16.8% 15.4% 5.0% 15.0% 12.2% 11.3% 0.0% 10.0% 7.8% 8.2% 5.7% 8.7% 5.0% 7.4% 7.3% -5.0% 5.9% 5.7% 5.1% 5.5% 1.2% 5.3% 4.8% 4.8% 4.7% 4.6% 4.3% 4.9% Comparable store sales grew just 0.2% YoY in 4Q16 (the same as FY16), and 0.0% -10.0% have plunged back to 1Q16 low, due to tepid demand caused by weak economic 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 conditions

Revenue growth Core NP growth -15.0% Overall sales New store sales Comparable store sales

Source: Company data Source: Company data

Industry beat-rate has eroded In the past, Sheng Siong managed to outgrow the rest of the industry by a factor of 1.6x to 1.8x. But its latest full-year results showed that this has fallen to just 1.2x in FY16, partly due to closures of two outlets late last year for renovations, namely Tampines Blk 506 and Loyang Point Blk 258, and also to a sharp slowdown in same store sales growth.

Figure 3: Sheng Siong’s sales growth (historical & forecast) vs the sector (x) 12.0% 2.0 1.7 1.8 1.8 10.0% 1.5 1.6 1.6 10.2% 7.9% 1.4 8.0% 1.2 1.2 5.6% 6.0% 5.3% 1.0 4.2% 5.8% 0.8 4.0% 5.1% 0.6 3.5% 0.4 2.0% 3.2% 3.3% 0.2 0.0% 0.0 2012 2013 2014 2015 2016 How much did SSG's growth beat the industry by? (RHS) Sheng Siong Singapore sales growth (LHS) Singapore supermarket sector growth (LHS)

Source: Company data, Euromonitor

Some bright spots However, new store sales growth benefited from the Sep 2016 opening of Yishun Junction 9, rising 8% YoY in 4Q16, taking new store sales growth to 6.2% for the full year. This helped to offset the weak SSSG. Gross margin also improved YoY to 26.3% in 4Q16, another record high, driven by a higher proportion of fresh produce at 42% of total sales in 2016, up from 40% at the end of FY15.

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Figure 4: Gross margin hit a record high in 4Q16 (basis points) 30.0% 4.0%

25.0% 3.0%

2.0% 20.0% 1.0% 15.0% 0.0% 10.0% -1.0%

5.0% -2.0%

0.0% -3.0%

Gross margin YoY ppt chg (RHS)

Source: Company data

2. Expect growth to slow

Euromonitor forecasts Singapore supermarket growth to slow drastically in 2016-2021 According to Euromonitor, Singapore’s supermarket scene is set to see a sharp slowdown during 2016-2021 to a CAGR of just 1.6% after growing 4.2% in 2011- 2016.

Figure 5: Supermarket sector revenue growth in Singapore to slow sharply in 2016-2021 (SGD'm) 10,000.0 8.0%

9,000.0 7.0% 8,000.0 5.8% 6.0% 7,000.0 5.1% 6,000.0 5.0% 3.5% 5,000.0 3.2% 3.3% 4.0% 4,000.0 3.0% 2.0% 3,000.0 1.6% 1.8% 1.2% 1.4% 2.0% 2,000.0 1,000.0 1.0% 0.0 0.0% 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F

Modern Grocery Retailers (MGR) MGR growth (RHS) Supermarkets growth (RHS)

Source: Euromonitor

The reasons cited include the following:

. Online grocery retailers are set to gain traction as tech-savvy consumers in Singapore take to the convenience that Internet retailers offer. In addition, online grocers are set to continue to offer new services and comfortable shopping experiences using data analysis to capture constantly evolving online consumer behaviour. . Existing grocery retailers are expected to face competitive challenges; Euromonitor flags the expected entry of global players, such as Amazon and Tesco. Amazon in particular has been reportedly buying refrigerated trucks and warehouses in Singapore as they prepare to launch AmazonFresh online

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Sheng Siong Group

fresh grocery retailing this year. While store-based grocery retailers are likely to still see positive growth, it is likely to be limited.1 . Convenience stores are also expected to fight back against the encroachment into their territories by store-based grocers that had opened smaller budget outlets in residential areas, such as FairPrice Shops by NTUC. 7-11 is responding by increasing the size of their new outlets and by stocking premium products. These include lifestyle products and IT gadgets, 7- Connect lockers (self-collection stations where online shopping parcels can be picked up), ATM machines, seating areas, and a new line of fresh-chilled, ready-to-eat meals delivered to stores daily. 40 flavours will be available in 2017, up from just seven flavours currently.2

In addition, Singapore’s number 1 online grocery shopping website Redmart was acquired by Lazada in late 2016. RedMart CEO and co-founder Roger Egan was quoted as saying “Through this partnership, we can further scale our logistics and tech platform to extend our product assortment and to offer an even more convenient service for our customers in Singapore. The capital flexibility provided through this deal will go towards innovating to delight our customers”.3 In our view, we can basically expect a more price-aggressive RedMart in future that will make it easier for consumers to use their services.

7-Eleven could also enter the site-bidding race The bidding for sites has already become intense due to the aggressive entry of smaller regional supermarket operators, such as Yes, U-Star and Angmo since 3Q16, as we flagged last year. If 7-Eleven, which is owned by Dairy Farm and has 430 outlets in Singapore currently, goes ahead with its expansion plan, this could lead to greater competition even for smaller HDB sites.

Figure 6: Aggressive bids for HDB shop lots from smaller independent supermarkets in recent months Bid closed Location Area (sq m) Bidders Bid (SGD/month) Bid (SGD/PSF) 19 Jan 2017 Blk 507, Yishun Avenue 4 348.0 U Stars Supermarket Pte Ltd 67,200 17.94 Cold Storage Singapore (1983) Pte Ltd 67,000 17.89 Sheng Siong Supermarket Pte Ltd 66,000 17.62 Fortune Supermarket Pte. Ltd. 48,100 12.84 NTUC FairPrice Co-operative Limited 38,100 10.17 30-Dec-16 Blk 120, Canberra Crescent 334.0 Ang Mo Supermarket Pte Ltd 62,100 17.27 30-Dec-16 Blk 260, Ang Mo Kio St 21 500.5 Ang Mo Supermarket Pte Ltd 80,100 14.87 9-Dec-16 Blk 878C, Tampines Ave 8 288.0 Yes Supermarket Pte Ltd 64,000 20.65 Ang Mo Supermarket Pte Ltd 63,900 20.61 Sheng Siong Supermarket Pte Ltd 50,500 16.29 Cold Storage Singapore (1983) Pte Ltd 44,000 14.19 Fortune Supermarket Pte. Ltd. 34,000 10.97 NTUC FairPrice Co-operative Limited 22,100 7.13 8-Dec-16 BLK 215C, Compassvale Dr 311.0 Raymond Chan 58,350 17.43 Sheng Siong Supermarket Pte Ltd 58,250 17.40 7S Mgt Pte Ltd 58,100 17.36 Sheng Siong Supermarket Pte Ltd 54,300 16.22 Cold Storage Singapore (1983) Pte Ltd 54,100 16.16 Ang Mo Supermarket Pte Ltd 53,100 15.86 NTUC Fairprice Co-Operative Ltd 49,600 14.82 (1996) Pte Ltd 43,388 12.96 Oct 2016 Choa Chu Kang Winning bidder was a mom & pop operator 17.00 Oct 2016 Winning bidder was a mom & pop operator 15.00

Source: Maybank Kim Eng, www.hbiz.com.sg

1 http://www.todayonline.com/business/amazon-ramps-hiring-singapore-amid-reports- 2017-launch 2 http://www.straitstimes.com/singapore/7-eleven-outlets-made-over-to-shake-up- convenience-store-arena?login=true 3 http://www.channelnewsasia.com/news/business/lazada-buys-redmart-for-undisclosed- sum/3255004.html February 27, 2017 4

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3. Operating model not sustainable

ROE improvement not driven by asset-use efficiency We did an ROE decomposition to see what has been driving Sheng Siong’s ROE growth in the past few years and we did not like what we found. From the charts below, it’s clear that ROE improvement has been driven only by margin improvement, while financial leverage and asset-use efficiency have not been factors.

Figure 7: ROE improvement has been driven mainly by margin Figure 8: Reason for lower operating efficiency is due to an improvement and not operating efficiency asset-heavy approach to store ownership since 2014

(x) (%) (x) (%) 1.8 35.0% 3.0 Purchase of Blk 506 Tampines Central 35.0% 1.6 30.0% 2.5 30.0% 1.4 25.0% 25.0% 1.2 2.0

1.0 20.0% 20.0% 1.5 0.8 15.0% 15.0% 0.6 1.0 Progress payments for Yishun Junction 9 10.0% 10.0% 0.4 5.0% 0.5 5.0% 0.2 Purchase of Blk 309 Bedok Central - 0.0% - 0.0%

Sales/total assets (asset turnover) Assets/Equity (financial leverage) Sales/non-curr assets (cap asset turnover) Assets/Equity (financial leverage)

EBIT/Sales (return on sales) RHS ROE - annualised (RHS) EBIT/Sales (return on sales) RHS ROE - annualised (RHS)

Source: Company data, Factset Source: Company data, Factset

The biggest problem we have with this is the fall in asset turnover since 2013 (Figure 6), as it implies an inability to improve asset-use efficiency. This is a more sustainable driver of ROE than margins, which can be due to trends that can either stall or go into reverse (as we will explain later). The reason behind the fall in asset turnover becomes clearer when we use fixed assets turnover to illustrate it (Figure 7). Since 2014, Sheng Siong has purchased three properties which currently house three outlets - 506 Tampines Central for SGD65m, 209 New Upper Changi Road for SGD53m, and 18,500 sf of space in Yishun Junction 9 for SGD55m – and they have directly contributed to lower asset turnover.

Figure 9: Inventory days steadily rising since 2012… Figure 10: …although cash collection has not suffered (SGD'm) (days) - 70.0 30.0

60.0 25.0 (5.0)

50.0 20.0 (10.0) 40.0 15.0 (15.0) 30.0

10.0 20.0 (20.0)

5.0 10.0 (25.0) 0.0 - (30.0)

Inventory Inventory days (RHS) Cash collection cycle (days)

Source: Company data, Factset Source: Company data, Maybank Kim Eng

Another reason for the struggle to improve asset turnover is deteriorating inventory turnover. Sheng Siong is maintaining more stock than ever now that it has expanded its store network to 42 outlets. On the negative side, the distribution centre has not helped to reduce inventory turnover, while on the bright side, cash collection has not suffered. The higher inventory could have been exacerbated by slower sales growth, as comparable store sales have fallen due to greater competition and belt-tightening that has affected even Sheng Siong.

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Sheng Siong Group

Figure 11: Comparable store sales growth has slowed to zero; new store sales growth could be similarly crimped in the future (YoY chg) 20.0% New store sales rose 8% in 4Q16, faster than 3Q16 because of the opening of Yishun Junction 9 in Sep 2016 15.0%

10.0%

5.0%

0.0%

-5.0% Comparable store sales grew just 0.2% YoY in 4Q16 (the same as FY16), and have plunged back to 1Q16 low, due to tepid demand caused by weak economic -10.0% conditions

-15.0% Overall sales New store sales Comparable store sales

Source: Company data

So essentially, Sheng Siong has seen slower turnover of its assets as comparable store sales have fallen, and this has been compounded by the need to acquire expensive fixed assets (instead of an asset-light renting approach) to maintain its store presence in busy areas, such as bus interchanges and town centrals. At the same time, it has not been able to leverage on operating efficiency or asset-use efficiency to reduce capital needs. And now even new store sales growth could be affected by increasing competition from smaller regional supermarket chains or perhaps even 7-Eleven. This is not a sustainable operating model for a low- cost, high turnover business, such as Sheng Siong’s, in our view.

Potential for further margin improvement could be limited One part of supermarket margins that is not well-discussed is the rebates they get from suppliers for whom they sell their products. There are generally three types of rebates. . One, service rebates, which suppliers pay in exchange for centralised delivery to Sheng Siong’s warehouse so that they do not have to deliver to each separate outlet. . Two, promotional rebates, which supermarkets get when they boost sales of their products by running promotions on them and hit volume targets. For example, Coca Cola could offer a percentage discount on 1-litre bottles if enough of them are sold within a given period. . Three, “play-one-against-another” rebates where Sheng Siong gets different suppliers to compete against one other to offer the best price. Products where there are many brands that are similar (e.g. instant coffee, cigarettes, beer) lend themselves best to this tactic.

Sheng Siong’s margin and ROE trends do not appear to be correlated to greater operating efficiencies, but we note that there appears to be a closer correlation to the number of stores than either asset turnover, inventory or comparable store sales growth. If the improvement had been driven more by greater supplier rebates, it would make sense. The more stores it has, the greater sales volume it would be able to achieve, thus raising the volume-related rebates from suppliers. It could also charge higher listing fees. According to management, these rebates accounted for 3 percentage points of its gross margin in 2016, compared to just 1% in 2011.

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Sheng Siong Group

Figure 12: Margin and ROE appear to be more closely correlated to the number of stores than to asset turnover or comparable store sales growth

45 35.0% 42 42 41 39 39 30.0% 40 38 38 25.0% 35 34 35 33 33 33 33 33 33 33 33 20.0% 31 15.0% 30 27 27 25 25 10.0% 25 23 23 23 5.0%

20 0.0%

No. of stores Gross margin (RHS) ROE (RHS)

Source: Company data, Factset

The issue is now slowing turnover and the rising competition for sites. As a result, Sheng Siong’s ability to grow volumes enough to justify more rebates could become increasingly hampered. Hence, the potential for margins and ROE to improve further would appear to be limited.

Interestingly, Sheng Siong’s management admitted that online grocers can become a credible threat once they scale to a high enough volume, as suppliers become enticed to work with them to promote their products. They will also be eligible for supplier rebates that Sheng Siong counts on for more than 12% of its gross profit (3ppt of its FY16 gross margin of 25.7%).

Other ROE-moving levers also limited Management could also try other levers to drive ROE higher. In our view, the following are possible:

. Raise margins further by more bulk handling & direct sourcing – but the scope to achieve this is increasingly limited. Sheng Siong could further raise the proportion of sales from higher-margin fresh produce from 42%, which is up from 32% of sales when it first listed in 2011. However, the pace of improvement is likely to slow as Sheng Siong is already sourcing 65-70% of its fresh produce directly. Also, its warehouse is almost fully utilised, hence further upside to centralised bulk-handling rebates from suppliers is also limited. The extension will take 18 months to complete. Direct sourcing has its own unique challenges. For example, chicken from Thailand is not well- accepted in Singapore as Thai farmers use seafood-based feed, which results in the chicken meat smelling fishy. According to management, they do not see much upside left for vegetables, fish, and meats, which are already sourced directly. Only frozen meat and seafood have scope for extension, but we believe demand is minor for frozen foods in Singapore. We have already factored in 30 basis points improvement in gross margin pa for FY17- 19E, in line with management guidance. . Raise financial leverage (assets/equity) – but what to buy? Sheng Siong could gear up its currently net-cash balance sheet. However, then the question becomes, what is desirable to buy? It could become a multi-format retailer, such as Dairy Farm, which is in supermarkets & hypermarkets, convenience stores, health & beauty stores, restaurants (and even home furnishing stores). But the same pressures that are affecting supermarkets would also apply, namely a limited domestic market that is already highly competitive in all these areas. Acquisitions of supermarkets in other countries, such as China are also possibilities, but that would change the risk

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profile of Sheng Siong – not something that investors, who buy it for the stable earnings and dividends, and low risk operations, would want to see.

Figure 13: Dairy Farm – ROE has fallen along with margins and Figure 14: Results from peak till FY15 have not been pretty; asset turnover; financial leverage rising dividends cut and P/E has derated (x) (cts/x) 12.0 80.0% 35.0 80.0% 70.0% 10.0 30.0 70.0% 60.0% 60.0% 25.0 8.0 50.0% 50.0% 20.0 6.0 40.0% 40.0% 15.0 30.0% 30.0% 4.0 10.0 20.0% 20.0% 2.0 5.0 4.5% 5.3% 4.4% 4.4% 4.5% 10.0% 10.0% 4.3% 3.5% 3.6% 3.3% 2.5% - 0.0% - 0.0%

Sales/non-curr assets (cap asset turnover) Assets/Equity (financial leverage) EBIT/Sales (return on sales) RHS ROE (RHS) DPS (cts) P/E (x) Payout ratio (RHS)

Source: Company data, Factset Source: Company data, Factset

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4. Forecasts & assumptions

We are forecasting flattish net profit in FY17 (up just 1% YoY) before a soft recovery in FY18 of 5%. We had previously forecasted 5.5% growth in FY17, and our latest forecast represents a 4% downgrade.

Our FY17 forecast factors in the following: . Closure of The Verge and Woodlands 6A outlets. By end-May 2017, Sheng Siong’s 45,000 sf store at The Verge will be vacated as the lease has ended without the possibility of renewal following the new owner’s plan to redevelop the whole building. By end-Aug 2017, another store with 41,000 sf of selling space at Blk 6A Woodlands Centre Road will be closed following the HDB’s plan to redevelop the whole estate. These two stores contributed 8.5% of FY16 revenue and accounted for 19% of total selling space. The good thing is that these two stores have underperformed and generated only SGD783 in revenue PSF pa in FY16 vs the group average of SGD1,826. Essentially, Sheng Siong only needs to add 33,000 sf of space in FY17E to plug the hole. . Re-opening of Loyang Point and Tampines 506 stores, plus one more. It will get this 33,000 sf once the Loyang (7,200 sf) and Tampines (25,000 sf) stores are re-opened. Loyang Point was opened in Feb, while Tampines will be opened in May. Along with another 10,000 sf of new selling space (which could come from a closed bid that it is currently pursuing with HDB), Sheng Siong should be able to almost fully plug the hole left by the two closures.

Figure 15: Singapore selling space and revenue PSF assumptions Selling space (sf) 2015 2016 2017E 2018E 2019E Beg of year 404,000 431,000 450,000 399,723 424,333 - Closures 0 (5,952) (92,477) 0 0 - Openings 27,000 24,800 42,200 24,610 21,217 Net change 27,000 18,848 (50,277) 24,610 21,217 End of year 431,000 450,000 399,723 424,333 445,550 Average weighted area (sf) 422,000 436,000 428,415 421,872 443,428 Revenue psf (weighted average) 1,810 1,826 1,879 1,950 1,902 Revenue psf pa (YoY) -0.2% 0.9% 2.8% 3.8% -2.5%

Source: Company data, Maybank Kim Eng

Figure 16: Singapore revenue PSF pa assumptions – working calculation Calculation of adjusted revenue PSF pa (excl Verge, Woodlands 6A) Calculation of revenue PSF pa assumption for FY17E Group GFA - end-2016 450,000 sf 2017 GFA addition (weighted avg) 23,500 sf Verge, Woodlands - estimated sales 67,718 SGD'000 - Loyang (total GFA 7,200 sf) 6,000 sf Verge, Woodlands - GFA 86,477 sf - Tampines (total GFA 25,000 sf) 12,500 sf Verge, Woodlands - rev PSF pa 783 SGD - Closed bid (total GFA 10,000 sf) 5,000 sf Group - GFA, net 357,523 sf Rev PSF pa assumed 5,000 SGD Group - rev PSF pa, net 2,039 SGD 2017 addition to revenue 117,500 SGD'000

2017 loss of GFA (weighted avg) (53,000) sf - Verge (24,174) sf - Woodlands (28,826) sf Rev PSF pa 783 SGD 2017 loss of revenue (41,503) SGD'000

Net rev added in 2017 75,997 SGD'000

2016 GFA excl Verge, Woodlands 357,523 sf Rev PSF pa assumed 2,039 SGD Revenue from old stores 728,965 SGD'000

Total rev forecast for 2017 804,962 SGD'000 Rev PSF pa 1,879 SGD Average weighted area (sf) in 2017 428,415 sf

Source: Company data, Maybank Kim Eng

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Sheng Siong Group

In addition, we have factored in some revenue contributions from China from FY17, using the assumptions shown in the tables below. However, we have also modelled in higher operating expenses, such as labour.

Figure 17: New China store revenue model Selling space (sf) 2017E 2018E 2019E Beg of year 0 54,000 54,000 - Closures 0 0 0 - Openings 54,000 0 0 Net change 54,000 0 0 End of year 54,000 54,000 54,000 Average weighted area (sf) – open in end-3Q17 13,500 54,000 54,000 Revenue PSF (weighted average) in CNY 2,500 3,000 3,600 Revenue PSF (weighted average) in SGD 515 619 742 Revenue PSF pa (YoY) 20.0% 20.0% Conversion ratio (SGD/CNY) 4.85 4.85 4.85 % of Singapore revenue PSF 27% 32% 39%

China revenue (SGD m) 6.9 33.4 40.1 China revenue growth (%) 380.0% 20.0%

Source: Company data, Maybank Kim Eng

Further out, we have lowered our FY18E and FY19E Singapore sales growth forecasts to track Euromonitor’s forecasts. Even assuming Sheng Siong is still able to grow faster than the market average by the lower-end of its historical industry beat-rate of 1.5-1.8x, we now only project growth of 2-2.5% pa vs expectations of 4-5% previously. Our latest FY18 forecast of 4.9% growth represents a 3% downgrade from our previous forecast. Our FY19 forecast of just 3.3% growth is newly introduced.

Figure 18: Singapore revenue projections FYE Dec (SGD’m) 2015 2016 2017E 2018E 2019E Singapore revenue 764.4 796.7 805.0 822.7 843.4 Singapore revenue growth 5.3% 4.2% 1.0% 2.2% 2.5% Euromonitor growth forecast 1.2% 1.4% 1.6% Sheng Siong’s beat rate (x) 0.9 1.6 1.6

Source: Company data, Maybank Kim Eng

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Sheng Siong Group

Value Proposition Price Drivers

. Low-overhead retailer of value-for-money groceries, Sheng Historical share price trend Siong’s prices are cheap, but products are of high value 4 and of reasonable quality. 1.20 260 1.10 240 . The products it offers in its conveniently-located 3 1.00 220 supermarkets in the public-housing heartlands are also 0.90 1 2 200 diverse with a wide range of sources. 0.80 180 . Low-cost cash or credit consumer staple business financed 0.70 160 by suppliers’ credit. High FCF generation supports asset 0.60 140 acquisitions, as well as 90% dividend payout. 0.50 120 1 0.40 100 0.30 80 Profitability vs returns: The only one in the magic quadrant Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Sheng Siong Group - (LHS, SGD) 7.0% Sheng Siong Sheng Siong Group / MSCI AC Asia ex JP - (RHS, %) 6.0% Puregold Price Club Big C Supercenter Source: Company, Bloomberg, Maybank Kim Eng AEON Malaysia 5.0% Robinsons Retail Dairy Farm 4.0% 1. Re-rating started as adverse effects of price war with CP All 3.0% Siam Makro NTUC faded and impact from unwished store closures Matahari Putra Prima

Avg 3Y Net Margin Net 3Y Avg became a thing of the past. 2.0% 2. Mild correction post share placement (120m @ SGD0.66). Sumber Alfaria Trijaya 1.0% 3. Rallied as new store dry spell of 2013-14 ended with the

0.0% addition of 5 new stores in 2015. 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 4. Fell from peak after Sheng Siong informed market of Avg 3Y ROE Source: Factset, Maybank Kim Eng potential closures of two stores – The Verge and Superbowl – and reminded the market of impending end- of-lease of Woodlands store.

Financial Metrics Swing Factors

. Revenue growth. Revenue growth to be subdued in FY17 Upside on weak consumer demand and keener competition for space. . Higher-than-expected revenue growth on the back of . Gross margin. Expect to see 300bps rise in gross margin pa food inflation and more new stores than expected. in FY17-19E mostly due to lower food costs; staff costs as . Better-than-expected food cost savings or lower labour % of sales should also decline due to more automation costs following greater automation. projects, such as self-payment and automated cash . Winning of more-than-expected number of tenders for handling. public housing sites for new supermarkets. . Capex. Sustained two years of high capex above SGD50m pa for asset acquisitions may lead to equity fund-raising. Downside Revenue slowdown should be offset by better margins . Inability to win bids for HDB supermarket sites due to 30.0% 12.0% 10.2% 26.6% 25.7% 25.9% 26.3% 10.0% entry of aggressive competitors could lead to delays in 7.9% 24.2% 24.7% 25.0% 22.1% 8.0% new store expansion. 21.8% 23.0% 6.0% . China supermarket venture does not take off as 20.0% 22.1% 5.6% 5.3% 4.0% 4.2% 5.4% successfully as expected. 3.2% 2.0% 15.0% 1.9% 0.0% . Inability to pass on higher food costs due to increased 0.0% -2.0% competition. 10.0% -4.0% 5.0% -6.0% -8.0% 0.0% -8.0% -10.0% 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E

Gross Margin Revenue YoY (RHS)

Source: Company, Maybank Kim Eng

[email protected]

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Sheng Siong Group

FYE 31 Dec FY15A FY16A FY17E FY18E FY19E Key Metrics P/E (reported) (x) 21.7 22.5 22.7 21.6 20.9 Core P/E (x) 25.3 22.9 22.7 21.6 20.9 P/BV (x) 5.9 5.7 5.6 5.4 5.3 P/NTA (x) 5.9 5.7 5.6 5.4 5.3 Net dividend yield (%) 3.7 3.9 4.0 4.2 4.3 FCF yield (%) 3.0 nm 2.6 5.1 5.8 EV/EBITDA (x) 14.2 15.0 15.2 14.3 13.3 EV/EBIT (x) 17.1 18.0 18.3 17.2 15.9

INCOME STATEMENT (SGD m) Revenue 764.4 796.7 811.9 856.1 883.5 Gross profit 202.3 219.6 226.1 241.3 251.7 EBITDA 79.9 90.5 91.4 96.0 101.7 Depreciation (13.4) (14.9) (15.4) (16.3) (16.8) Amortisation 0.0 0.0 0.0 0.0 0.0 EBIT 66.5 75.6 76.0 79.7 84.9 Net interest income /(exp) 1.2 0.6 0.8 0.9 0.9 Associates & JV 0.0 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 67.7 76.2 76.8 80.6 85.8 Income tax (10.9) (13.5) (13.4) (14.1) (17.2) Minorities 0.0 0.0 0.0 0.0 0.0 Perpetual securities 0.0 0.0 0.0 0.0 0.0 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 56.8 62.7 63.4 66.5 68.7 Core net profit 56.8 62.7 63.4 66.5 68.7 Preferred Dividends 0.0 0.0 0.0 0.0 0.0

BALANCE SHEET (SGD m) Cash & Short Term Investments 125.9 63.5 45.7 61.7 85.2 Accounts receivable 11.8 10.4 12.2 12.9 13.3 Inventory 52.5 61.9 66.7 70.4 72.6 Reinsurance assets 0.0 0.0 0.0 0.0 0.0 Property, Plant & Equip (net) 177.6 252.0 259.2 253.7 242.2 Intangible assets 0.0 0.0 0.0 0.0 0.0 Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other assets 0.0 0.0 0.0 0.0 0.0 Total assets 367.8 387.8 383.9 398.7 413.3 ST interest bearing debt 0.0 0.0 0.0 0.0 0.0 Accounts payable 108.7 117.5 111.2 117.3 121.0 Insurance contract liabilities 0.0 0.0 0.0 0.0 0.0 LT interest bearing debt 0.0 0.0 0.0 0.0 0.0 Other liabilities 15.0 15.0 15.0 16.0 19.0 Total Liabilities 123.6 133.0 126.6 133.4 140.2 Shareholders Equity 244.2 252.1 257.3 265.3 273.2 Minority Interest 0.0 2.8 0.0 0.0 0.0 Total shareholder equity 244.2 254.9 257.3 265.3 273.2 Perpetual securities 0.0 0.0 0.0 0.0 0.0 Total liabilities and equity 367.8 387.8 383.9 398.7 413.3

CASH FLOW (SGD m) Pretax profit 67.7 76.2 76.8 80.6 85.8 Depreciation & amortisation 13.4 14.9 15.4 16.3 16.8 Adj net interest (income)/exp 1.2 0.6 0.8 0.9 0.9 Change in working capital 1.3 (0.1) (18.5) 0.9 0.2 Cash taxes paid (8.9) (13.0) (13.5) (13.3) (14.1) Other operating cash flow 0.0 0.0 0.0 0.0 0.0 Cash flow from operations 73.5 78.1 60.3 84.4 88.7 Capex (30.4) (89.9) (22.5) (10.8) (5.3) Free cash flow 43.1 (11.8) 37.8 73.6 83.4 Dividends paid (48.9) (54.9) (56.3) (58.4) (60.8) Equity raised / (purchased) 0.0 2.7 0.0 0.0 0.0 Perpetual securities 0.0 0.0 0.0 0.0 0.0 Change in Debt 0.0 (0.0) 0.0 0.0 0.0 Perpetual securities distribution 0.0 0.0 0.0 0.0 0.0 Other invest/financing cash flow 1.2 1.2 0.8 0.9 0.9 Effect of exch rate changes 0.0 0.4 0.0 0.0 0.0 Net cash flow (4.5) (62.4) (17.8) 16.0 23.5

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FYE 31 Dec FY15A FY16A FY17E FY18E FY19E Key Ratios Growth ratios (%) Revenue growth 5.3 4.2 1.9 5.4 3.2 EBITDA growth 17.9 13.3 1.0 4.9 6.0 EBIT growth 17.0 13.7 0.5 4.9 6.6 Pretax growth 17.2 12.6 0.8 4.9 6.5 Reported net profit growth 19.3 10.4 1.1 4.9 3.3 Core net profit growth 19.3 10.4 1.1 4.9 3.3

Profitability ratios (%) EBITDA margin 10.5 11.4 11.3 11.2 11.5 EBIT margin 8.7 9.5 9.4 9.3 9.6 Pretax profit margin 8.9 9.6 9.5 9.4 9.7 Payout ratio 92.7 89.9 90.0 90.0 90.0

DuPont analysis Net profit margin (%) 7.4 7.9 7.8 7.8 7.8 Revenue/Assets (x) 2.1 2.1 2.1 2.1 2.1 Assets/Equity (x) 1.5 1.5 1.5 1.5 1.5 ROAE (%) 23.6 25.3 24.9 25.4 25.5 ROAA (%) 15.9 16.6 16.4 17.0 16.9

Liquidity & Efficiency Cash conversion cycle (29.6) (29.9) (25.8) (21.5) (21.8) Days receivable outstanding 5.3 5.0 5.0 5.3 5.3 Days inventory outstanding 30.6 35.7 39.5 40.1 40.7 Days payables outstanding 65.5 70.6 70.3 66.9 67.9 Dividend cover (x) 1.1 1.1 1.1 1.1 1.1 Current ratio (x) 1.6 1.0 1.0 1.1 1.2

Leverage & Expense Analysis Asset/Liability (x) 3.0 2.9 3.0 3.0 2.9 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Net gearing (%) (excl. perps) net cash net cash net cash net cash net cash Net interest cover (x) na na na na na Debt/EBITDA (x) 0.0 0.0 0.0 0.0 0.0 Capex/revenue (%) 4.0 11.3 2.8 1.3 0.6 Net debt/ (net cash) (125.9) (63.5) (45.7) (61.7) (85.2) Source: Company; Maybank

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Research Offices

REGIONAL HONG KONG / CHINA INDONESIA Surachai PRAMUALCHAROENKIT (66) 2658 6300 ext 1470 Sadiq CURRIMBHOY Howard WONG Head of Research Isnaputra ISKANDAR Head of Research [email protected] Regional Head, Research & Economics (852) 2268 0648 (62) 21 8066 8680 • Auto • Conmat • Contractor • Steel (65) 6231 5836 [email protected] [email protected] [email protected] • Strategy • Strategy • Metals & Mining • Cement WONG Chew Hann, CA Suttatip PEERASUB • Oil & Gas - Regional (66) 2658 6300 ext 1430 Regional Head of Institutional Research Rahmi MARINA Benjamin HO (62) 21 8066 8689 [email protected] (603) 2297 8686 [email protected] • Media • Commerce (852) 2268 0632 [email protected] [email protected] ONG Seng Yeow • Consumer & Auto • Banking & Finance Regional Head of Retail Research Sutthichai KUMWORACHAI (65) 6231 5839 Christopher WONG Aurellia SETIABUDI (66) 2658 6300 ext 1400 [email protected] (852)2268 0652 [email protected] (62) 21 8066 8691 [email protected] • HK & China Properties [email protected] • Energy • Petrochem TAN Sin Mui • Property Jacqueline KO, CFA Director of Research Termporn TANTIVIVAT (852) 2268 0633 [email protected] Pandu ANUGRAH (65) 6231 5849 [email protected] (66) 2658 6300 ext 1520 • Consumer Staples & Durables (62) 21 8066 8688 [email protected] [email protected] ECONOMICS • Property Ka Leong LO, CFA • Infra • Construction • Transport• Telcos Suhaimi ILIAS (852) 2268 0630 [email protected] Chief Economist • Consumer Discretionary & Auto Janni ASMAN Jaroonpan WATTANAWONG (62) 21 8066 8687 (66) 2658 6300 ext 1404 Malaysia | Philippines Mitchell KIM (603) 2297 8682 [email protected] [email protected] [email protected] (852) 2268 0634 [email protected] • Cigarette • Healthcare • Retail • Transportation • Small cap CHUA Hak Bin • Internet & Telcos Regional Thematic Macroeconomist Adhi TASMIN (65) 6231 5830 [email protected] Ning MA (62) 21 8066 8694 VIETNAM (852) 2268 0672 [email protected] [email protected] LEE Ju Ye • Insurance LE Hong Lien, ACCA Singapore • Plantations Head of Institutional Research (65) 6231 5844 [email protected] (84) 8 44 555 888 x 8181 Ricky NG, CFA Anthony LUKMAWIJAYA [email protected] Tim LEELAHAPHAN (852) 2268 0689 [email protected] (62) 21 8066 8690 • Strategy • Consumer • Diversified • Utilities Thailand • Regional Renewables [email protected] (66) 2658 6300 ext 1420 • HK & China Properties • Aviation [email protected] THAI Quang Trung, CFA, Deputy Manager, Sonija LI, CFA, FRM PHILIPPINES Institutional Research Saktiandi SUPAAT (852) 2268 0641 [email protected] (84) 8 44 555 888 x 8180 Head, FX Research • Gaming Michael BENGSON Head of Research [email protected] (65) 6320 1379 [email protected] (63) 2 849 8840 • Real Estate • Construction • Materials Stefan CHANG, CFA [email protected] STRATEGY (852) 2268 0675 [email protected] • Strategy • Utilities • Conglomerates • Telcos Le Nguyen Nhat Chuyen • Technology – Regional (84) 8 44 555 888 x 8082 Sadiq CURRIMBHOY Lovell SARREAL [email protected] Global Strategist INDIA (63) 2 849 8841 • Oil & Gas (65) 6231 5836 [email protected] [email protected] Jigar SHAH Head of Research • Consumer • Media • Cement NGUYEN Thi Ngan Tuyen, Head of Retail Research Willie CHAN (91) 22 6623 2632 [email protected] (84) 8 44 555 888 x 8081 Hong Kong / Regional • Strategy • Oil & Gas • Automobile • Cement Rommel RODRIGO [email protected] (63) 2 849 8839 (852) 2268 0631 [email protected] • Food & Beverage • Oil&Gas • Banking Vishal MODI [email protected] • Conglomerates • Property • Gaming (91) 22 6623 2607 [email protected] MALAYSIA • Ports/ Logistics TRINH Thi Ngoc Diep • Banking & Financials (84) 4 44 555 888 x 8208 WONG Chew Hann, CA Head of Research Katherine TAN [email protected] (603) 2297 8686 [email protected] Neerav DALAL (63) 2 849 8843 • Technology • Utilities • Construction • Strategy (91) 22 6623 2606 [email protected] [email protected] Desmond CH’NG, ACA • Software Technology • Telcos • Banks • Construction PHAM Nhat Bich (603) 2297 8680 (84) 8 44 555 888 x 8083 [email protected] SINGAPORE THAILAND [email protected] • Banking & Finance • Consumer • Manufacturing • Fishery Neel SINHA Head of Research Maria LAPIZ Head of Institutional Research LIAW Thong Jung (65) 6231 5838 [email protected] Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 (603) 2297 8688 [email protected] NGUYEN Thi Sony Tra Mi • Strategy [email protected] • Oil & Gas Services- Regional (84) 8 44 555 888 x 8084 • SMID Caps – Regional • Strategy • Consumer • Materials • Ind. 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February 27, 2017 14

Sheng Siong Group

APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

DISCLAIMERS This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. One or more directors, officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report to the extent permitted by law. This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this report. Malaysia Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Singapore This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. Thailand Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of Maybank Kim Eng Securities (Thailand) Public Company Limited. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) accepts no liability whatsoever for the actions of third parties in this respect. Due to different characteristics, objectives and strategies of institutional and retail investors, the research reports of MBKET Institutional and Retail Research Department may differ in either recommendation or target price, or both. MBKET Retail Research is intended for retail investors (http://kelive.maybank- ke.co.th) while Maybank Kim Eng Institutional Research is intended only for institutional investors based outside Thailand only. The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. MBKET does not confirm nor certify the accuracy of such survey result. The disclosure of the Anti-Corruption Progress Indicators of a listed company on the Stock Exchange of Thailand, which is assessed by Thaipat Institute, is made in order to comply with the policy and sustainable development plan for the listed companies of the Office of the Securities and Exchange Commission. Thaipat Institute made this assessment based on the information received from the listed company, as stipulated in the form for the assessment of Anti- corruption which refers to the Annual Registration Statement (Form 56-1), Annual Report (Form 56-2), or other relevant documents or reports of such listed company. The assessment result is therefore made from the perspective of Thaipat Institute that is a third party. It is not an assessment of operation and is not based on any inside information. Since this assessment is only the assessment result as of the date appearing in the assessment result, it may be changed after that date or when there is any change to the relevant information. Nevertheless, MBKET does not confirm, verify, or certify the accuracy and completeness of the assessment result. US This third-party research report is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations. All U.S. persons receiving and/or accessing this report and wishing to effect transactions in any security mentioned within must do so with: Maybank Kim Eng Securities USA Inc. 777 Third Avenue 21st Floor New York, New York 1- (212) 688-8886 and not with, the issuer of this report.

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Sheng Siong Group

UK This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Conduct Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.

DISCLOSURES

Legal Entities Disclosures Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938- H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This report is distributed in Singapore by Maybank KERPL (Co. Reg No 198700034E) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Maybank Kim Eng Securities (“PTMKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the Financial Services Authority (Indonesia). Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and Exchange Commission. Vietnam: Maybank Kim Eng Securities Limited (License Number: 117/GP-UBCK) is licensed under the State Securities Commission of Vietnam. Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited and the Bombay Stock Exchange and is regulated by Securities and Exchange Board of India (“SEBI”) (Reg. No. INZ000010538). KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) and as Research Analyst (Reg No: INH000000057) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Services Authority.

Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.

Singapore: As of 27 February 2017, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.

Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.

Hong Kong: As of 27 February 2017, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.

India: As of 27 February 2017, and at the end of the month immediately preceding the date of publication of the research report, KESI, authoring analyst or their associate / relative does not hold any financial interest or any actual or beneficial ownership in any shares or having any conflict of interest in the subject companies except as otherwise disclosed in the research report.

In the past twelve months KESI and authoring analyst or their associate did not receive any compensation or other benefits from the subject companies or third party in connection with the research report on any account what so ever except as otherwise disclosed in the research report.

MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Reminder Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Ong Seng Yeow | Executive Director, Maybank Kim Eng Research

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Sheng Siong Group

Historical recommendations and target price: Sheng Siong Group (SSG SP)

25 Aug 27 Jun 26 Jul 27 Sep 27 Oct 13 Dec Buy : SGD1.1 Buy : SGD1.1 Buy : SGD1.1 Hold : SGD1.1 Hold : SGD1.1 Sell : SGD0.9 1.1

1.1

1.0

1.0

0.9

0.8

0.8 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17

Sheng Siong Group

Definition of Ratings Maybank Kim Eng Research uses the following rating system BUY Return is expected to be above 10% in the next 12 months (excluding dividends) HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends) SELL Return is expected to be below -10% in the next 12 months (excluding dividends)

Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

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Sheng Siong Group

 Malaysia  Singapore  London  New York Maybank Investment Bank Berhad Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Securities Maybank Kim Eng Securities USA (A Participating Organisation of Maybank Kim Eng Research Pte Ltd (London) Ltd Inc Bursa Malaysia Securities Berhad) 50 North Canal Road PNB House 777 Third Avenue, 21st Floor 33rd Floor, Menara Maybank, Singapore 059304 77 Queen Victoria Street New York, NY 10017, U.S.A. 100 Jalan Tun Perak, London EC4V 4AY, UK 50050 Kuala Lumpur Tel: (65) 6336 9090 Tel: (212) 688 8886 Tel: (603) 2059 1888; Tel: (44) 20 7332 0221 Fax: (212) 688 3500 Fax: (603) 2078 4194 Fax: (44) 20 7332 0302

Stockbroking Business:  Hong Kong  Indonesia  India Level 8, Tower C, Dataran Maybank, Kim Eng Securities (HK) Ltd PT Maybank Kim Eng Securities Kim Eng Securities India Pvt Ltd No.1, Jalan Maarof Level 30, Sentral Senayan III, 22nd Floor 2nd Floor, The International, 59000 Kuala Lumpur Three Pacific Place, Jl. Asia Afrika No. 8 16, Maharishi Karve Road, Tel: (603) 2297 8888 1 Queen’s Road East, Gelora Bung Karno, Senayan Churchgate Station, Fax: (603) 2282 5136 Hong Kong Jakarta 10270, Indonesia Mumbai City - 400 020, India

Tel: (852) 2268 0800 Tel: (62) 21 8066 8500 Tel: (91) 22 6623 2600 Fax: (852) 2877 0104 Fax: (62) 21 8066 8501 Fax: (91) 22 6623 2604

 Philippines  Thailand  Vietnam  Saudi Arabia Maybank ATR Kim Eng Securities Inc. Maybank Kim Eng Securities Maybank Kim Eng Securities Limited In association with 17/F, Tower One & Exchange Plaza (Thailand) Public Company Limited 4A-15+16 Floor Vincom Center Dong Anfaal Capital Ayala Triangle, Ayala Avenue 999/9 The Offices at Central World, Khoi, 72 Le Thanh Ton St. District 1 Villa 47, Tujjar Jeddah Makati City, Philippines 1200 20th - 21st Floor, Ho Chi Minh City, Vietnam Prince Mohammed bin Abdulaziz Rama 1 Road Pathumwan, Street P.O. Box 126575 Tel: (63) 2 849 8888 Bangkok 10330, Thailand Tel : (84) 844 555 888 Jeddah 21352 Fax: (63) 2 848 5738 Fax : (84) 8 38 271 030 Tel: (66) 2 658 6817 (sales) Tel: (966) 2 6068686 Tel: (66) 2 658 6801 (research) Fax: (966) 26068787

 South Asia Sales Trading  North Asia Sales Trading Kevin Foy Andrew Lee Regional Head Sales Trading [email protected] [email protected] Tel: (852) 2268 0283 Tel: (65) 6636-3620 US Toll Free: 1 877 837 7635 US Toll Free: 1-866-406-7447

Malaysia Thailand Joann Lim Tanasak Krishnasreni [email protected] [email protected] Tel: (603) 2717 5166 Tel: (66)2 658 6820

Indonesia London Harianto Liong Scott Kinnear-Nock [email protected] [email protected] Tel: (62) 21 2557 1177 Tel: (44) 207-332-0221

New York India Andrew Dacey Manish Modi [email protected] [email protected] Tel: (212) 688 2956 Tel: (91)-22-6623-2601

Vietnam Philippines Patrick Mitchell Keith Roy [email protected] [email protected] Tel: (84)-8-44-555-888 x8080 Tel: (63) 2 848-5288 www.maybank-ke.com | www.maybank-keresearch.com

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